Sydney home prices drop for first time in 17 months
Gravity has finally hit Sydney’s housing market after a record boom last year and analysts are warning a recent fall in prices is part of a larger change for buyers and sellers.
Sydney property prices have fallen for the first time in 17 months as the threat of rising interest rates and economic uncertainty sours homebuyer demand.
CoreLogic’s home value index released Tuesday showed the average value drop over February was 0.1 per cent, with the median price of houses, units and townhouses slumping to $1.11m.
The fall, while minor, was a symbolic turn for the market, which had been booming at unprecedented levels last year.
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The suburbs falling out of favour with buyers
Prices had mushroomed by more than 3 per cent per month in the early stages of 2021 and there was an additional boom in prices when the Harbour City went into winter lockdown.
It’s meant a city home remains close to 23 per cent pricier than it was a year ago – an average rise of about $220,000.
CoreLogic indicated the staggering price gains last year were part of the reason the market was slowing.
“Housing affordability has been eroded by the high rate of growth in dwelling values alongside low income growth,” the research group reported.
“Not only does worsening affordability restrict access to the housing market, especially first homebuyers, it also erodes housing sentiment.”
Realestate.com.au director of economic research Cameron Kusher said another reason demand was softer was that many of the people who wanted to move home already did so last year.
Transaction levels were at record highs over the year, and with lenders rapidly increasing their rates, it was inevitable the property boom would dissipate at some point, Mr Kusher said.
A changing economic environment may be adding to the downward pressures on buyer demand, according to CoreLogic.
“As Australians cautiously emerge from social distancing, there is likely to be a shift in household spending and a slowdown in savings that may have gone towards a deposit,” CoreLogic noted in Tuesday’s index release.
“Consumer sentiment could be further negatively impacted by Russia’s invasion of Ukraine, triggering a new wave of global uncertainty.”
There was also a significant change in the balance of property supply to demand, with listings levels returning to “normal” levels this year after a prolonged shortage during much of the pandemic, the report showed.
CoreLogic research director Tim Lawless said more choice translated to less urgency for buyers and some empowerment at the negotiation table.
Conversely, last year’s housing shortage meant more buyers were competing for the same properties and had to bid up prices if they wanted to secure the homes they liked.
“The slower growth conditions in Australian housing values goes well beyond the rising expectation of interest rate hikes later this year,” Mr Lawless said.
“The pace of growth in housing values started to ease in April last year, when fixed-term mortgage rates began to face upwards pressure, fiscal support was expiring and housing affordability was becoming more stretched.
“With rising global uncertainty and the potential for weaker consumer sentiment amid tighter monetary policy settings, the downside risk for housing markets has become more pronounced in recent months.”
Mr Lawless said the February drop in prices may not signal the start of a downturn but rather a prolonged period of “levelling out” in the market. Larger drops in prices would likely come later in the year or next year, he said.
Originally published as Sydney home prices drop for first time in 17 months